Date: Friday 24 Aug 2012
Optimism that the Federal Reserve would embark on more stimulus were driving gains on Friday after a letter from Chairman Ben Bernanke was leaked to the press in afternoon trade.
Bernanke said in a letter to a Republican member of the House of Representatives: "There is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery." Specific intervention measures are expected to be revealed at the Fed's annual symposium at Jackson Hole next week.
That signal was enough to boost equities despite figures showing capital investment waned 3.4% in July. This metric covers corporate spending on things like communications equipment and indicates companies are reluctant to invest while growth remains weak.
US investors also responded positively to news that the European Central Bank may set target “bands” for sovereign bond yields. This may reduce pressure on Italian and Spanish debt, as the market would expect intervention by the ECB to prevent borrowing costs remaining too high for too long.
In economic news, durable goods orders rose by 4.2% month-on-month during July, well in excess of the 2.5% increase expected by the consensus.
However, the data was distorted, in part, by a 53.9% increase in non-defence aircraft and parts. Furthermore, excluding Defense and civilian aircraft - the so-called "core" capital goods orders - orders fell by 3.4% month-on-month (consensus forecast: +0.2%)
Eli Lilly, the pharmaceuticals company was a strong performer on positive test results for a new Alzheimer’s drug.
Sector peer Watson Pharmaceuticals also rose after it revealed it had received FDA approval for a generic version of the Lidoderm anaesthetic.
Software group Autodesk dropped after quarterly revenues disappointed and full-year guidance was trimmed. 2012 revenues will be up 4-6% year-on-year, compared with the firm's initial estimate of a 10% rise. Sector peer Adobe was also under the weather.
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